According to Reuters, South African mobile group MTN has entered talks to buy smaller rival Telkom in a stock or cash-and-shares deal that would see them leapfrog market leader Vodacom Group.
The potential $1 billion-plus deal would give MTN access to Telkom’s fibre assets, seen as a must for expanding 4G and 5G mobile services. As a result, Telkom’s shares were up 33.3% at 44.6 rand by Friday to be on track for the biggest daily jump on record. In the same vein, MTN shares were up by 7.4%.
According to the companies in a separate statement on Friday:
“Discussions are at an early stage and there is no certainty that the transaction will be consummated,” the companies said in separate statements on Friday.
What the deal means for both parties
If successful, the deal would grant MTN access to Telkom’s Openserve fibre business, which made 13.4 billion rands ($782 million) in revenues for the year ended March 31 and connects around 2.5 million premises.
“It (the proposed deal) does make sense in every way. We’re seeing this happening in many other jurisdictions, where the mobile operators are consolidating with fixed line players,” Peter Takaendesa, head of equities at Mergence Investment Managers said.
“The key reason is that as you move towards 4G and 5G, you need more fibre to connect your mobile network.”
“If the deal goes through, MTN together with Telkom will own at least over 50% of the entire market share and that’s clearly, obviously a dominant market position,”AJ Snyman, an investment analyst at Peregrine Capital said.
MTN would also have access to Telkom’s prized 3.5 gigahertz spectrum, ideal for 5G, giving it a dominant spectrum holding, he added.
What analysts are saying about the deal
Several analysts have questioned whether South Africa’s competition regulator would sanction a partnership that would essentially establish a telecoms duopoly in the continent’s most developed country.
AJ Snyman, an investment analyst at Peregrine Capital, said he thought there was “zero” chance South Africa’s Competition Commission would approve the deal in its current form.
When South Africa’s data costs are already expensive relative to other developed telecom markets, some investors claimed the alliance has the potential to stifle competition and result in higher prices.
Although the acquisition would see MTN upset Vodacom’s position as the biggest market share holder, Vodacom recently agreed to acquire a co-controlling interest in the fibre assets of Community Investment Ventures Holdings, putting pressure on MTN to respond.
As reported some months ago, MTN group recently emerged as the top African brand in the continent, displacing Dangote Group according to the 12th edition of Brand Africa’s annual Brand Africa 100 released which revealed the top 100 brands in Africa.
A Competition Commission spokesperson said it noted the developments but wouldn’t comment as it had not received a notification of the potential deal.
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